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Cost of goods sold for Year 2 was $300,000. Sales for Year 2 were $600,000. Inventory was $40,000 at the end of Year 1 and $60,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to one decimal) was:Multiple choice question.$600,000 / (($40,000 + $60,000) / 2) = 12.0 times$300,000 / $60,000 = 5.0 times$600,000 / $60,000 = 10.0 times$300,000 / (($40,000 + $60,000) / 2) = 6.0 times

Question

Cost of goods sold for Year 2 was 300,000.SalesforYear2were300,000. Sales for Year 2 were 600,000. Inventory was 40,000attheendofYear1and40,000 at the end of Year 1 and 60,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to one decimal) was:Multiple choice question.600,000/((600,000 / ((40,000 + 60,000)/2)=12.0times60,000) / 2) = 12.0 times300,000 / 60,000=5.0times60,000 = 5.0 times600,000 / 60,000=10.0times60,000 = 10.0 times300,000 / ((40,000+40,000 + 60,000) / 2) = 6.0 times

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Solution

To calculate the inventory turnover for Year 2, we use the formula:

Inventory Turnover=Cost of Goods SoldAverage Inventory \text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}

First, we need to find the average inventory for Year 2:

Average Inventory=Inventory at the end of Year 1+Inventory at the end of Year 22 \text{Average Inventory} = \frac{\text{Inventory at the end of Year 1} + \text{Inventory at the end of Year 2}}{2}

Substitute the given values:

Average Inventory=40,000+60,0002=100,0002=50,000 \text{Average Inventory} = \frac{40,000 + 60,000}{2} = \frac{100,000}{2} = 50,000

Next, we use the cost of goods sold and the average inventory to find the inventory turnover:

Inventory Turnover=300,00050,000=6.0 \text{Inventory Turnover} = \frac{300,000}{50,000} = 6.0

Therefore, the correct answer is:

$300,000 / (($40,000 + $60,000) / 2) = 6.0 times \text{\$300,000 / ((\$40,000 + \$60,000) / 2) = 6.0 times}

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